It’s time to assess your IRA plans and be sure to take before the end of the year the actions that can increase your financial independence. Many actions must be completed before December 31 or the opportunity to reap their benefits for this year is lost.
In many cases you want to initiate the actions well before the end of the year. Often, in late December IRA custodians, banks, and brokers are backed up with numerous year-end requests. Some custodians won’t guarantee they can complete your actions in time. Others won’t accept certain types of orders late in December.
The first action, of course, is to complete any contributions you’ve planned for the year. There no longer is an age limit for contributions to either traditional or Roth IRAs. But you must have earned income from a job or self-employment to make a contribution.
When you’re planning to convert all or part of a traditional IRA to a Roth IRA, the transaction must be complete before December 31. Directing the custodian to make the conversion isn’t sufficient. The money or assets must be moved from the traditional IRA to the Roth version before January 1.
Check that you’ve taken any required minimum distributions (RMDs) for your traditional IRA and 401(k). As with the conversion, the transaction must be completed by the end of December 31.
If this is your first RMD (that means you turned 73 in 2023), you have until April 1, 2024, to take the distribution. But you’ll also have to take 2024’s RMD next year. That means if you wait until after December 31 to take the first RMD, you’ll take and be taxed on two RMDs in 2024.
Beneficiaries of inherited IRAs (whether traditional or Roth) might have to take RMDs by the end of 2023 or they might want to take some money out in 2023 so they aren’t bunching large RMDs in future years. But beneficiaries who are subject to the 10-year rule under the SECURE Act should know that the IRS suspended the 2023 RMD requirements, because it hasn’t issued final regulations yet.
There’s a little-known rule for the RMD of a recently-deceased person. An RMD has to be taken for the year a person died. If the person didn’t take the RMD before passing away, then the principal beneficiary must take the year-of-death RMD before the end of the year and be taxed on it.
If you’re over age 70½, have a traditional IRA, and make charitable contributions, it’s a good idea to make the contributions through qualified charitable distributions (QCDs) from your traditional IRA. The QCD counts as part of any RMD you’re required to take for the year and it isn’t included in your gross income.
The QCD is a way to take money out of a traditional IRA tax free and satisfy any RMD requirement. It’s a great strategy for IRA owners who make charitable contributions.
